NBA Coach, Player Arrested in Illegal Gambling Indictment. Online Gaming Stocks Flat.

The FBI is expected to hold a news conference about the probe on Thursday. (Photograph by Ronald Martinez/Getty Images)

Key Points

• Thirty-four individuals, including NBA personnel, were arrested in connection with two federal indictments concerning illegal gambling.
• One indictment involved an illegal poker ring, while the second focused on an NBA gambling ring using insider information for prop bets.
• NBA Commissioner Adam Silver previously advocated for stronger gambling regulation and asked sportsbooks to reduce prop bets.

Thirty-four individuals including Portland Trail Blazers head coach Chauncey Billups and Miami Heat player Terry Rozier were arrested Thursday in connection with two federal indictments regarding illegal gambling.

At a press conference, the U.S. attorney for the Eastern District of New York, Joseph Nocella, Jr., called it “one of the most brazen sports corruption schemes since online sports betting became widely legalized in the United States.”

“This is the insider trading saga for the NBA,” FBI director Kash Patel said at the press conference.

One indictment involved an illegal poker ring backed by the Sicilian Mafia.

The second indictment centers around a so-called “gambling ring” of NBA players and coaches using insider information to place proposition bets, or prop bets—wagers on moments during a game that are unrelated to the final score.

In one instance outlined in the second indictment, Rozier allegedly told co-conspirators that he would be leaving a game early, and the gambling ring bet that he wouldn’t score a certain amount of points. “Rozier exited the game after just nine minutes and those bets paid out, generating tens of thousands of dollars in profit,” NYPD Commissioner Jessica Tisch said during the press conference. “The proceeds were later delivered to his home, where the group counted their cash.”

The indictments came just a day after NBA Commissioner Adam Silver appeared on ESPN to advocate for stronger gambling regulation, adding that the NBA has asked its sportsbook partners “to pull back on some of the prop bets.”

“It’s too easy to manipulate something which seems otherwise small and inconsequential to the overall score,” Silver said on The Pat McAfee Show.

The NBA said in a statement that Rozier and Billups have been “placed on immediate leave from their teams, and we will continue to cooperate with the relevant authorities. We take these allegations with the utmost seriousness and the integrity of our game remains our top priority.”

To some, a scandal like this seemed inevitable. “There have been cracks in the facade of what sportsbooks have tried to propagate, which is that by bringing sports betting into the light by bringing it into regulation it will not threaten the integrity of professional sports,” says Jonathan Cohen, author of the book Losing Big: America’s Reckless Bet on Sports Gambling. “This kind of thing shows that as much light as you want is not going to keep the threat of corruption away.”

Cohen believes that the proliferation of sports betting has had an effect on the players themselves. “They probably wouldn’t think to bet on their performance if there wasn’t a FanDuel ad shoved down their throats every time they turn on the NBA.”

“Today’s events are deeply disturbing, and should concern fans, athletes, and everyone who loves sports and values integrity and fair play,” a FanDuel spokesperson said in a statement. “At FanDuel, we use advanced technology and real-time monitoring to identify suspicious activity and work closely with leagues, data monitoring groups, and law enforcement. We are unwavering in our commitment to rooting out abuses by those who seek to undermine fair competition and the games we love.”

“We fundamentally believe that regulated online sports betting is the best way forward to monitor for and detect suspicious behavior while offering consumer protections backed by advanced technology, neither of which exist in the pervasive illegal market,” a DraftKings spokesperson said.

Nocella declined to name the specific sportsbooks that were used to place the alleged illegal bets and said that “the sportsbooks themselves are victims in this case. As far as our investigation has concluded they did not perpetrate anything unlawful.”

“The sportsbooks are not liable here—they were watchdogs,” says Daniel Wallach, a gambling law expert known online as “The Sports Betting Attorney.” Wallach believes the indictments were made possible by suspicious betting detection and reporting tools built into betting platforms. Those tools are mandated by state regulatory agencies. “This is state regulation working,” he says. “It’s in the sportsbooks’ interests to report this information to law enforcement authorities.”

Shares of DraftKings were flat, and shares of FanDuel’s parent company, Flutter , were up 0.4%.

Write to Nick Devor at nicholas.devor@barrons.com and Nate Wolf at nate.wolf@barrons.com